After such a long time of not posting any content, I finally found an opportunity to do so. To the subscribers, welcome back. If you just stumbled upon this blog, welcome and feel free to click on the subscribe button on the sidebar and enter your email address to subscribe for new publications to be delivered to your email every time there’s a new blog post . You will receive an email with a confirmation link, click on it and confirm subscription. Please note that the email may be in spam/junk folder.
The world is faced with the global pandemic called Covid-19 also known as corona virus. This pandemic has disrupted the world’s economies and created huge volatility in the markets which can be very dangerous to most traders but can also bring trading opportunities to some traders who are able to keep up with all the breaking news. In this post, I am going to share how the virus has impacted the Forex markets. Most traders still believe that trading Forex is just about a smart phone and reading through some lines (which is far from that, we will discuss this some other time)
Central Banks During Covid-19
The impact of corona virus has called for Central Banks to re-look their Interest Rates to save their economies. Over the past few weeks, Federal Reserve Bank, Bank of Canada and other Central Banks had to call for an emergency Rate Cut meeting. To understand why such a move, you have to understand the advantages of having lower Interest Rates. I will list them out below.
1: What is the role and function of a Central Bank?
- To set official bank rates used to manage inflation and exchange rates
- To issue a country’s currency
- To set targets and monitor economic data while they implement special tools.
2: Why would a Central Bank opt for lower interest rates?
- To encourage borrowing : When the Interest Rates of a country is cut, it also means that the people who are borrowing from the banks will be paying less Interest on their loans. That will then encourage consumers and even big companies to borrow for spending and bigger investments.
- To make saving less attractive: When the return on savings are lower, most people would opt for spending money than holding on to it.
- To weaken the currency: When the currency is weak, the country’s exports become more competitive and their imports more expensive which also encourages consumers to buy local because of the exchange rates.
- To lower Mortgage loans: When mortgage loans holders pay less interest on their existing loans, they may be left with more money and that should increase consumer spending in the country.
3: Oil Prices
The oil industry is also greatly affected by Covid-19. When the pandemic started to spread, oil was already under a lot of pressure due the price war. Goods are not moving due to the lock-down in most countries. As a result, there’s less demand of oil. Even when OPEC agreed on cutting supply, it didn’t help much with the price because there’s less demand. To learn more about OPEC and what happens to oil prices when they cut supply, or when there’s over supply, you can read this POST. Travel and tourism is largely affected. Jet fuel is not being used because international flights are halted as well as domestic ones. There is definitely an oversupply of oil which makes oil prices to remain low.
How to take advantage of the current situation in the markets?
The first thing that you need to do is to stay away from anyone who claims to be predicting the markets and knowing exactly what’s gonna happen next, avoid such people. Stay updated with business news, breaking news and follow the Central Banks and key economic indicators. During this time of crisis, the key economic indicators such as employment change, unemployment rates and so forth, may also be inaccurate because some surveys collect such data on a door-to-door basis, which is impossible to access homes during lock down.
If you have been trading but you have never cared or were never interested in what really moves the markets, now is the time to learn. As long as you have invested your money in Foreign Exchange, you will be affected by economic crisis (whether you choose to believe in it or not). Just like when it is winter, it affects all of us whether we believe in winter or not. I know a lot of traders started to pay attention when Brexit happened in 2016. Should you wish to learn more about the markets other than just reading charts, feel free to contact me for private coaching. You can also use the WhatsApp feature on the sidebar for instant chat.
Thank you so much for stopping by and reading this post. To help more individuals access this information, kindly share with your peers and stay tuned for more information, weekly economic news and practical tips that you can use to improve your trading. Please live a comment below and tell me if you like the new look. I am in love with this new home, a big shout out to my designer for a job well done and a fresh look.